Does Uncle Sam Have a Birthday Gift for You This Year? Ages 0-49

For your birthday this year, you may have received a special gift from a loved one or favorite friend. Depending on the number of candles on this year’s birthday cake, you may also get a gift from Uncle Sam when you file your tax return next tax season.

In this two part series, we will learn that in some situations the gift may not be because you reached a certain age, but will be the result of the age your dependent(s) or spouse turned this year. Unfortunately, not all of Uncle Sam’s gifts will be welcomed, because some birthdays mark the end of eligibility for certain credits or exclusions of income. Others signal the start of needing to include retirement benefits in income.

How the IRS Defines and Adult’s Age and Birthday

Under common law, a person attains a given age on the day before his or her birthday. This can impact the taxpayer’s return for certain age-related tax issues. For example, a taxpayer whose 65th birthday is on January 1 is considered to be age 65 as of December 31 of the prior year. That person is eligible for an additional standard deduction amount for the prior year.

How the IRS Defines a Child’s Age and Birthday as Dependents

When it comes to children, the IRS ruling is different, on several tax provisions, discussed in this article. The child reaches a given age on the actual date the child was born, instead of the day before.

How Old Are You on Your Next Birthday?

If you or someone in your family reaches one of the following ages this year, here is how your tax return may be impacted:

Age 0 – Well, OK, zero is not really an age. But, if your dependent is born in 2015, you can claim a $4,000 exemption allowance for the child. Exemptions are subtracted from your gross income to determine your taxable income. Your taxable income determines your marginal tax bracket. So, for example, if you are in the 25% tax bracket, each exemption allowance reduces your tax by $1,000.

Age 13 – Most people know that if you pay child care expenses while you or your spouse work, it is tax credit. You can claim a credit for child care expenses. But, did you know that the same is true if you pay child care while you look for work? Unfortunately, this credit ends when the qualifying child, who is your dependent, turns 13 years old in the calendar year. Only expenses for child care up to the date of the child’s 13th birthday will be eligible for the credit. This is the same if you receive dependent care benefitsfrom your employer. The value of those benefits is taken out from your income once the child turns 13. An exception to the age limit applies if the dependent child is not physically or mentally able to care for himself or herself.

Age 17 – One of the requirements for the child tax creditis that the qualifying child be younger than 17 at the end of the tax year. If your child turns 17 during 2015, you will not be allowed to claim the child tax credit for this child for current or any future year. The amount of the credit is $1,000 per eligible child, subject to a phase-out based on your adjusted gross income (AGI).

Age 18 – To claim an adoption creditfor expenses you paid to adopt a child, the child must have been younger than 18 at the time you paid or incurred the expenses. A child turning 18 during the year is an eligible child for the part of the year he or she was younger than 18. The age limitation does not apply if the person you adopted is physically or mentally unable to take care of himself or herself.

Age 19 – To be a qualifying child for dependency purposes, the child must be younger than 19 as of the end of the year. However, if the child is a full-time student, they must be younger than 24. So, if your child’s 19th birthday was in 2015 and he or she is not a full-time student for some part of at least 5 months during the year, you cannot claim the child as a dependent under the definition of a qualifying child. Once again, the age limit does not apply for a child who is unable to physically or mentally provide care for themselves. Depending upon both the child’s income and who provided the majority of the child’s support, you may be able to use a different definition to claim the dependency.

Age 24 – Are you still claiming your older-than-18 child as a dependent based on the child being a full-time student status? Meaning, the child does not provide more than half of his or her own support. If so, you won’t be able to claim the child’s dependency under that rule starting in the year the child has his or her 24th birthday. Depending on the child’s gross income and other factors, you may still be entitled to the dependency exemption, but under the “other” dependent rules and not the “qualifying child” rules.

Age 25 – If you are a lower-income taxpayer who is at least 25 years old before the end of the year, and you do not have a qualifying child, you may be eligible for the earned income credit. If you are married, and file a joint return, either you or your spouse must meet the age requirement. This age requirement for the earned income credit does not apply if you have a qualifying child.

Age 27 – There are various provisions of the Patient Protection and Affordable Care Act that apply to a child younger than 27. This means an adult child who has not had his or her 27th birthday as of December 31st. For example, your younger-than-27 child may be included on your health insurance plan, even if the child is not your dependent. If you are self-employed, the premiums you paid for the health insurance coverage of a child younger than 27 can be included as part of the above-the-line deduction of health insurance costs you may be able to deduct.

Next week we will tell you about the birthday surprises you could experience starting at age 50 and beyond. If you or a member of your tax family celebrated a milestone birthday (or half-birthday) this year and you have questions as to how the tax implications of that event will affect your return, please give Alex Franch, BS EA a call at 781-849-7200.

For more information, call Alex Franch at 781.789.7200. WorthTax has locations in Norwell, Dedham, and Weymouth, Massachussetts.

Alex Franch

Mr. Franch is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Mr. Franch is an Enrolled Agent and has eight years of tax preparation experience. He has been serving individuals, families, and businesses for several years with tax and financial planning strategies and is a junior partner with the firm.
Mr. Franch is licensed by the Financial Industry Regulatory Authority (FINRA) with a Series 6, 63, 65, and 7, and by the Commonwealth of Massachusetts Division of Insurance.